Netflix Faces Taxation Challenge in India as Government Targets Overseas Digital Companies

Netflix has been available in the Indian market for many years but couldn’t grow as much as its competitors like Disney+ Hotstar or Amazon Prime Video. Netflix has tried hard to woo customers in India with different strategies. To get a better hold of the market, it slashed plan prices up to 60% – a mobile-only monthly plan now costs 149 rupees ($2). In addition, it has invested over $400m to produce over 50 films – including 30 Hindi-language films – and shows. Netflix has never revealed a specific subscriber base for India, but estimates place the figure at over 6 million.

In a recent update on taxation policy on various streaming platforms, the income tax department is exploring the possibilities of bringing the famous media platform under new guidelines. For Netflix, India is an important market as the country contributed the highest net subscriber additions to its global tally in 2022. This number was driven by the launch of an aggressive pricing plan in December 2021, original Indian content, and licensed movies. However, the Indian government is considering imposing taxes on Netflix’s operation. This is because the company has a permanent establishment (P.E.) in India and is therefore subject to having the income it derives from the nation assessed for tax.

The tax department’s move would be the first-ever by the government to tax overseas digital companies for providing electronic commerce services to India. The action is part of India’s efforts to regulate the digital economy and ensure that foreign companies pay taxes on the revenue they earn in the country. The Indian government has been discussing introducing a digital tax for some time now. This action against Netflix could be a test case for future taxation of other foreign digital companies.

It would be a difficult choice for the consumer if the company increased the prices of the memberships. Consumers in India are very competitive in terms of pricing and might shift to other OTT platforms. Recently, many users switched to JioCinemas from Disney+ Hotstar, as JioCinema provides at least one year of free subscriptions and IPL matches. Hotstar charges a starting price of Rs299 per month for watching IPL. In just three months, the streaming giant has lost over 4 million subscribers, and since October 2022, it has lost over 8.4 million followers, primarily due to the rise of JioCinema. Therefore, there are chances of a similar consumer shift from Netflix too.

The Government of India’s taxation policy could favor Indian streaming platforms in the long run, as Netflix would have to increase the prices if the taxation policy were implemented on them in the future. Therefore, there is a high possibility that this would shift users from foreign media platforms to Indian streaming platforms, expanding the user base and earnings. However, the popularity of Netflix is much higher among the people in India. Therefore, this would be an excellent opportunity for Indian streaming platforms to increase their popularity among Indian users by giving more value-driven content.